Bankruptcy – JamesBosco.com

More Bankruptcy Coming (to a city near you)

The top 10 biggest U.S. cities on the brink of pension bankruptcy.

#1 Philadelphia – Unfunded liability of $9 billion, $16,696 per household, only 1 year before the pension accounts are empty

#2 Chicago – Unfunded liability of $44.8 billion, $41.966 per household, money runs out in 4 years

#3 Boston – Unfunded liability of $7.5 billion, $30,901 per household, money runs out in 4 years

#4 Cincinnati – Unfunded liability of $2 billion, $15,681 per household, money runs out in 5 years

#5 St Paul – Unfunded liability of $1.4 billion, $13,686 per household, money runs out in 5 years

#6 Jacksonville – Unfunded liability of $4 billion, $12,944 per household, money runs out in 5 years

#7 New York City – Unfunded liability of $122 billion, $38,866 per household, money runs out in 6 years

#8 Baltimore – Unfunded liability of $3.7 billion, $15, 420 per household, money runs out in 7 years

#9 Detroit – Unfunded liability of $6.4 billion, $18,643 per household, money runs out in 8 years

#10 Fort Worth – Unfunded liability of $2 billion, $7,212 per household, money runs out in 8 years

via Business Insider.

This list was put together using data from 2010-12. So Detroit is on the list… and not at the top. So how was Detroit the first to go? Because the tax base fled in mass. The constant media attention to Detroit didn’t help either. But kudos to them for filing early and getting it out of the way. The longer you wait the worse it is for everybody.

Chicago sadly has the highest debt per capita. The debt per household is approaching the average annual household income. Who’s going to pay that off? How many will participate in paying? As Obama would say, will be make sure that everyone pays their fair share?

Pensioners Take Note, Municipal Bond Storm Coming

[B]ut California too is now starting to hand it to bondholders. Cities in California are now testing the limits of bankruptcy law, and not paying the debt nor the payments for retirees to the state system. Thus this article describes how the state retirement system (CALPERS) is suing to demand payment, and saying that retiree obligations come AHEAD of creditors (municipal bond holders) in the queue.

“The issue is, do Calpers obligations supersede unsecured bondholders?” Fabian said in a telephone interview. “There’s an awful lot of unsecured bondholders in California. If you put pension obligations to Calpers as secured and senior to unsecured debt, in effect those bonds have been downgraded.”

In the Stockton and San Bernardino cases, Calpers is arguing that pension contributions must be made ahead of payments to other creditors because they are so-called statutory liens, or debts that state law requires to be paid. Bondholders and other creditors that oppose Calpers argue that pension debt is a contractual obligation like any other.

You’d have to be nuts to buy California municipal debt if Calpers has precedence and employee retirement benefits can’t be cut, since this is the MAIN THING that is driving these cities into insolvency. In the future likely these municipalities would just contract out everything to third parties that wouldn’t pay their employees those giant benefits, but the cities have to jettison these liabilities to put their fiscal house in order today.

via Chicago Boyz.

In case this is a little tough to follow, in bankruptcy debts are paid according to a priority. There’s a decent primer here.

The “Illinois” based pensions are probably ok. e.g. ITRS. There is no statute permitting a state to file for bankruptcy protection.

However cities are corporations; they can (and do) file for bankruptcy protection. CPS, CPD, CFD employees and retirees should watch these cases in California closely. They may be getting a real haircut if they have to defer to the bond holders to get their money.

It’s all very very sad.

Obama a Real Contributor to Subprime Loan Failures

President Barack Obama was a pioneering contributor to the national subprime real estate bubble, and roughly half of the 186 African-American clients in his landmark 1995 mortgage discrimination lawsuit against Citibank have since gone bankrupt or received foreclosure notices.

As few as 19 of those 186 clients still own homes with clean credit ratings, following a decade in which Obama and other progressives pushed banks to provide mortgages to poor African Americans.

via The Daily Caller.

Kudos to The Daily Caller for putting together this incredibly well researched piece about Obama being one of the lawyers who sued Citibank to make sub-prime loans.

That this story is being written in 2012 and not 2008, and by a small independent website and not by any of the major media outlets is a complete indictment of our entire media system.

I can remember when I stopped watching The Daily Show. It was shortly before the 2008 election and Michelle Obama was the guest. After she comes out, the first question John Stewart asks is something like, “Tell us something we don’t know about you?” and the crowed goes wild. It was an sardonic arrow aimed at those who were screaming to anyone who would listen, ‘What do we really know about these people?’

The truth Mr. Stewart, is we knew very little about these people. We still know very little about these people. It’s a same that the media didn’t do its job 4 years ago and any time since. So because you ignored your responsibilities for the last 4 years someone has now produced some facts showing how:

Obama sued Citibank forcing it to make bad, sub-prime loans;
Many of those loans failed, including nearly half of those plaintiffs in the Obama case;
The sub-prime loan failures led to the collapse of the entire mortgage system causing the greatest economic crisis since the great depression.

Mr. Obama help create the problem he inherited.

That is what the press should be reporting.

U.S. Postal Service is Dying, Why You Should Care

The USPS has been teetering on the brink of bankruptcy. A key reason was a 2006 law that required the postal service to make annual payments of about $5.5 billion for 10 years to pay for future retiree health benefits. …

In the three months that ended June 30, the agency reported net losses of $5.2 billion.

via CNN.

People like to point out why the post office is suffering a slow cancerous death. eMail, electronic bill pay, faxes, etc. But that’s all garbage. The U.S.P.S. is dying because it failed to meet the realities of the marketplace and because it overpays it’s workers, a/k/a bad management.

Compare the USPS which LOST $5.2 billion in the 2Q 2012 to UPS which made $1.12 billion in the same period. Or FedEx which made $459 million in the 3 months ending 08/12.

Years ago I read Jim Rogers‘ book Investment Biker. In it he tells the story of being in the USSR and mailing some packages back to the UK. Long story short, the communist government charged less to mail letters and package than it cost. This was because it was popular with the people. The people wanted to be able to send letters cheaply and the government obliged. But it was but one example of several (cited in the book) showing how and why the USSR would fail. A government cannot continue to offer services for less than what they cost.

No entity can continue to offer services for less than their cost. The USPS is not exception. It must either figure out how to charge enough for the service it provides or get out of the business. But right now the taxpayers are on the hook to massive amounts of USPS debt. That’s not right.

Lastly, you should care… greatly. The government is now just starting to take over the nations health care. It too will be run with the same level of efficiency and forward thinking as the USPS, or maybe the State of Illinois DMV.

Health care in this country will follow the USPS in bankruptcy. And that’s not going to be good for anyone.

Bankrupt Stockton Chicago

Yesterday’s news:

Officials in Stockton said Tuesday that mediation with creditors has failed, meaning the Central California city is set to become the largest American city ever to declare bankruptcy. …

The river port city of 290,000 in Central California has seen its property taxes and other revenues decline, while expensive investments and generous retiree benefits drained city coffers.

via NY Daily News.

Tell me something I don’t know, right?

Stockton, with 300,000 residents and $700 million in debt, would be one of the largest cities ever to file for Chapter 9 protection, according to municipal finance experts and bankruptcy officials.

via WSJ.com.

Humm…. ok. Let’s compare that to Chicago.

Calling local government debt “staggering,” Cook County Treasurer Maria Pappas announced Tuesday that the $108 billion debt tab across various governing bodies in the county translates to $63,525 per Chicago household and nearly $33,000 per suburban household.

via Chicago Sun-Times. (Sept 29, 2011 — we now know the number to be higher.)

Math (not new math, the old fashioned kinda math.)

Stockton:
$700M / 290,000 residents = $2,413.80 of debt for every man woman and child in Stockton.

Chicago:
$63,525 * 1,033,022 households = $65,622,722,550 in total debt;
$65,622,722,550 / 2,695,598 people in the city = $24,344.40 of debt for every man woman and child in Chicago.

In order for the situation to be comparable, the dazzling urbanites of Chicago would have to earn 10 x as much as the poor downtrodden folks of Stockton.

Back to the Census:

Chicago Per Capita Money Income in Past 12 Months — $27,148

Stockton Per Capita Money Income in Past 12 Months — $20,176

So the average joker in Stockton has to work for about a month and a half (2413 / 20176 *365 = 44 days) to pay off their portion of the debt.

The average joker in Chicago has to work for nearly a year (24344 / 27148 * 365 = 327 days) to pay off their portion of the debt.

And so I ask you which one of these municipalities should really be filing for bankruptcy? Which is in worse financial shape? Who’s employee’s should be more worried about their pensions? Who’s politicians are doing the right thing by dealing with the issue square-on and not trying to pawn it off on future generations?

I’m just asking.

Hat Tip to Anthony Curran for the concept of this post.